Unilateral Effect Of Horizontal Mergers And Anti-trust Review

From the1990s, a M&A wave of horizontal merger upsurges in China, which dues to the pressure of economic transition, industrial restructuring and the economic globalization etc. The antitrust authorities have paid close attention to horizontal merger for a long time, because it is likely to bring about unilateral effects. Although China has implemented the "Anti-Monopoly Law"(AML) in2008, antimonopoly authorities still face great challenges when they review on the horizontal mergers based on AML, for the AML itself is under the principle of some broad-brush terms. Therefore, it is urgent to strengthen the research on antitrust review of horizontal mergers, which is the intrinsic request for a successful enforcement of the AML.Based on the standard Cournot competition model and Bertrand competition model, this paper systematically summaries the literature of unilateral effects both home and abroad, makes a detailed study of its economic principle,Identification method, defensive factors and merger remedies. The main conclusions which will give some valuable guidance to the anti-monopoly practice are as follows:First, A direct effect of horizontal mergers is to eliminate the competition between merging firms, change the competition structure of relevant market, which makes the merging firms have the ability to raise product price, reduce production or quality, and weaken innovation. Obviously, unilateral effect is a kind of anti-competitive effect. Therefore, both from the economic theory and the legal angle, unilateral effect as a "competition damage theory" is suitable for China.Second, When judging whether to approve a proposed merger, China can reference the framework used by the US and the EU:defining the relevant market; calculate market share and concentration; identify anti-competition effect;considering the defensible factors to weaken anti-competition effect, such as entry and efficiency; and at last resort to merger remedies. In the merger review process, China should also focus on learning new economic analysis method such as UPP test, make the threshold of HHI index, according to our national situations.Third, theoretical research based on the Cournot model shows that:(1) asset divestiture can weaken unilateral effects to a certain extent, and increase the possibility of a proposed merger to be approved;(2) From the view of game theory, non-merging firms participate in the auctions not only for enhancing its market power and further expanding its scale of production, but also preventing other competitors from getting the assets. However, which firm will finally win the divested assets, depending on market size and the quantity of assets divestiture.(3) Under the total social welfare standards, in order to approve a merger with anti-competitive effects after attaching assets divestiture, the following three conditions should be satisfied: first, effectively correct the potential unilateral effects brought by merger; second, does not damage the interests of both merging parties; third, improve total social welfare.Forth, this paper argues that social welfare standards is looser than consumer welfare standards, asset divestiture which increases total social welfare may harm consumers interests. Although the United States and the European Union apply consumer welfare standards in judging the competition effect, this paper believes that the relative flexible social welfare standards, will be more suitable for China and more beneficial to the development of economy.The innovations of this paper can be summarized as follows:First, This paper expands the SSR model. Firstly adds efficiency factor into SSR model, then assumes that competition strategy change after merger, that is the mergering firm becomes a leader and take the Stackelberg strategy. The analysis shows if the merger brings enough efficiency improvement, producers' profit will increase, market price will fall and consumer welfare increase, then the total social welfare is improved.Therefore, the government should encourage this "a stone three bird" merger activity, and at the same time, the analysis provides a theoretical basis for efficiency factor shall be included in the merger control process.Second, This paper comprehensively uses legal and economic measures to discuss merger remedies of unilateral effect. Based on a four-firm Cournot competition model, this paper builds an asset divestiture model of horizontal mergers with foreign firms. It analyzes the effects of the merger on consumer surplus, firm profits and social welfare. It argues that asset divestitures can weaken the unilateral effect of a merger, promote consumer surplus and increase the possibility of merger approval. Based on this, this paper discusses the difference between consumer welfare standard and total social welfare standard. In the meanwhile, it explicitly analyzes the auction game of the assets to be divested, also discovers that auction results depend on market size and the amount of divested assets. This paper also discusses some of the issues the anti-monopoly authority might face when adopting asset divestiture remedies.Third, for the first time, this paper analyzes the11cases publicly announced by the Ministry of Commerce China. The evolution of announcement form witnessed the improving capabilities and efficiencies of the MOFCOM, and reveals the overall features, trend and existing problems during the initial stages of AML enforcement.